If you’re living in a busy city that attracts a lot of visitors, or someplace that has a high season for tourists, you’ve probably considered renting your property out for short-term vacation rentals. Airbnb has been the most successful site, but in the past few years a flurry of competitors such as Vrbo, Tripping.com, and HomeToGo have also emerged. While the nightly rate for a short-term rental is typically higher than the rent that a long-term tenant would pay for the same period, it doesn’t always make sense to rent short-term. Here are some things to consider.
The most undeniable advantage of short-term rentals is the diversity of renters. With long-term rentals, ideally you’ll have a financially stable tenant who pays on time and lives in your unit for a long time. But the reality is that if your renter has a job loss or any type of financial setback, you could experience a sudden loss of income. The advantage of short-term rentals is that you’re never dependent on one person to cover your income.
With short-term rentals, your nightly rate will always be higher than what you could charge for a year-round tenant. In Seattle, where the average apartment rents for $2,000, the average Airbnb charges $150 per night. If you were able to keep that unit occupied every night, you’d have about $4500 per month. But that’s a big “if,” as the average Airbnb in Seattle was only occupied 74% of the time. Using that metric, the Airbnb would yield $3330 per month, which is still better than $2000. Just bear in mind that there are a lot of expenses that short term rental owners have to incur that landlords do not. When you’re running an Airbnb, you need to pay for the utilities, the Wi-Fi, and the cable bill. Additionally, all of the furniture, kitchenware, bedding, and anything else in the unit must be paid for by the owner.
Another issue to consider is whether your city or allows short-term rentals or what regulations are in place. Scottsdale, Arizona, limits the number of guests in a short-term rental to six adult renters plus their children. In San Francisco, you are only able to rent your primary residence for a maximum of 90 nights. You can rent it out the rest of the year, but you must be there with your guest. Beyond city guidelines, a lot of HOAs have rules about short term rentals. Even in communities that allow them, it’s easy to get on the bad side of the HOA. If one noisy guest decides to throw a party, you could get you cited by your HOA.
The other consideration with short-term rentals is that they are more labor intensive. You are personally responsible for maintaining the cleanliness of your site and changing the sheets and towels for every new guest. You can either do that yourself or hire someone to turn over your rental and welcome your guests, which would cut into your bottom line.
Ultimately, the most important aspect of short-term rentals is that the demand needs to be there. Not every market can support year-round short-term rentals. Even if you’re based in a community with high demand, it can take a while for your short-term rental to gain a customer base, so make sure you have enough reserves when you’re getting started.